Expected Bold Student Loan Reforms In 2019

EPF March 16, 2019

With the American presidential elections almost here and more than before, there’s one topic that will top headlines-student loan debt. The debt currently stands at more than $1.5 trillion, and without doubt, it will be among top issues of discussion by the contestants on the campaign trail.

Studies show that over 40 million Americans owe student loans. And being that students make a considerable population of voters, the candidates will need to come up with bold policies and proposals that will appeal to this group of voters. The candidates know that they’ll have to stand out to the voters.

Below are some of the reforms that you can anticipate in the coming days regarding the student loan debt.

College Studies Free of Debts

As we speak, there are several calls and proposals to subsidize or eliminate college tuition fees at public universities.

House Democrats, for example, have already forwarded their proposal for the Aim Higher Act, which would in return increase grant-based federal help and avail federal financial incentives to the states so that it reduces tuition fees at the state institutions. There are particular states that so far have already implement debt-free college programs ahead of the others. One such state is New York who has proposed free tuition at state colleges targeting students who hail from lower-income families and commit to remaining in New York even after graduating.

Loan Refinancing Programs

Addressing the recurring increase in student loan debt by advising students against debt-financed degrees will make an essential part of any student loan reform law. However, it’s a task for the legislators to ensure that they adequately address the $1.5 trillion, the student loan debt that is already in existence.

The idea of helping borrowers hold the cost of repaying loans by the students would be a good program by the federal government that gives room for them to refinance their student loans. It should open a way for both federal loans and, potentially, private loans repayment at much lower interest rates.

A presidential candidate, Senator Elizabeth Warren, made this proposal back in 2014. However, it did not pass.

Supporters of this policy say it will drastically reduce the costs involved in the repayment of students’ loans. Those against the system, however, feel that it would be much beneficial to higher-income earners compared to their opposite counterparts. The reason they (those against) give is that the student loans made to parents and students who have graduated do have higher rates of interest than the credits for the undergraduate student.

Caps On Interest Accumulation

Reduction in the interest rates is one way of lowering the cost of repaying the student loan. Alternatively, capping the amount of interest that can accrue on a student loan would do – say a percentage of the initial principal balance.

It’s not a new thing for students who borrow a loan to wind up paying back their initial principal balances many times during repayment because of an interest that accrues in the course of schooling and other deferments and forbearances periods. Sometimes, because of income-driven repayment plans with relatively low monthly payments. Inserting a cap on interest accrual would see a decrease in runaway balance, as it will provide borrowers with ample time to complete the repayments of the loans.

Cancellation and the Forgiveness on Student Loans

Most people do not believe that reforms on the student loan interest and repayment would not adequately address the crisis of student debt. At the time of this article, some more robust ideas like the cancellation of loan debts by the student stimulate the economy are evident. They are fast coming into the picture in the mainstream political discussion.

While it would be like a “dream” to think of a possibility of wiping out $1.5 trillion in student loan debt, we could see a shoring up or increase in the number of student loan forgiveness programs.

Reforms in the Bankruptcy Cases

Students loan borrowers experience a major stumbling block in discharging their loans in bankruptcy because of the bankruptcy code.

There are calls all over for reforms that will reinstate the ability of those who borrow to discharge their debt in bankruptcy, like any other case of consumer debt.

Skeptics, however, worry that if such reform were enforced, the student with debts and even the recently graduated would flock courts that handle bankruptcy cases with petitions to discharge their loans. The advocates have a perception that bankruptcy comes with hosts of negative consequences – among them, social discrimination and deep-rooted credit damage – that is likely to dissuade a lot of people from going the bankruptcy route immediately.

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